荷美爾 (HRL) 2010 Q3 法說會逐字稿

Welcome to the Hormel Foods third quarter earnings conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

(Operator Instructions) This conference is being recorded today, Friday, August 20, 2010.

I would now like to turn the conference over to Mr.

Kevin Jones.

Please go ahead sir.

Good morning.

Welcome to the Hormel Foods conference call for the third quarter of fiscal 2010.

We released our results this morning before the market opened around 6.30 AM Central time.

If you did not receive a copy of the release you can find it on our website at www.hormelfoods.com under the Investor section.

On our call today is Jeff Ettinger, Chairman of the Board, President and Chief Executive Officer, and Jody Feragen, Senior Vice President and Chief Financial Officer.

Jeff will provide a review of the operating results for the quarter, then Jody will provide detailed financial results for the quarter.

The line will be opened for questions following Jody's remarks.

Please limit yourself to one question and one follow-up if needed.

If you have further questions, please go to the end of the queue so everyone has an opportunity to ask questions.

An audio replay of this call will be available beginning at 10.30 AM Central time today, August 20, 2010.

The dial-in number is 800-406-7325, and the access code is 4339593.

It will also be posted to our website and archived for one year.

Before we get started with the results of the quarter, I need to reference the Safe Harbor statement.

Some of the comments made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those expressed in or implied by the statements we will be making.

Among the factors that may affect the operating results of the Company are fluctuations in the cost and availability of raw materials and market conditions for finished products.

Please refer to pages 32 through 38 in the Company's Form 10-Q for the quarter ended April 25, 2010, which was filed with the SEC on June 4, 2010 for more details.

It can be accessed on our website.

Now I will turn the call over to Jeff.

Good morning, everyone.

We're pleased to report another excellent quarter building upon the momentum of our strong first half of the year.

We were able to grow both earnings and sales by double digits in what is still a challenging consumer environment.

Earnings per share increased to $0.63, up 11% from a year ago, fueled by segment profit gains in four of our five segments.

Total dollar sales of $1.7 billion were up 10% from a year ago.

I will now take you through each segment.

Our Grocery Products group reported a segment profit decrease of 23% and a dollar sales increase of 12% for the third quarter.

The majority of the sales increase can be attributed to increased sales of products by our MegaMex Foods business.

We are pleased with the success of MegaMex so thus far as we continue to gain additional distribution in the retail trade channels.

At the grocery product segment profit level, however, the higher sales of Mexican products and increased sales of our Hormel chili items were unable to offset the pressure from higher raw material costs on our SPAM family of products, our Hormel bacon toppings and our chunk meat brands.

Our Refrigerated Food segment reported a segment profit increase of 11%, aided by continued strong cut-out margins and a sales increase of 12%.

This year, strong cut-out margins have given us the balance to continue growing earnings during a time of raising hog costs.

Last year our value-added products provided the lift we needed to continue to enhance segment profit.

On the retail side we continue to generate strong sales growth from our Hormel party trays.

In addition, our new items such as snack stix and minis continue to drive sales growth of our Hormel pepperoni line.

We also achieved additional distribution of our Natural Choice deli meats.

Our team is doing a nice job with the integration of our Country Crock Side Dish business, capturing synergies and co-marketing these products with our Hormel refrigerated entrees and with other products such as our Lloyd's Barbeque line.

Our Food Service group has also had success growing sales of branded value-added product during the quarter.

Sales of our Natural Choice deli meats, Austin Blues Barbecue products, Cafe H ethnic product and pizza toppings all grew during the quarter.

Jennie-O Turkey Store increased segment profit, a strong 93% on flat total sales.

While higher commodity turkey meat prices and lower feed costs helped, the primary driver of our results at Jennie-O was improved efficiencies across the entire supply chain and then in our operations.

Strong export sales of turkey thigh meat also aided results.

Sales of value-added products at Jennie-O Turkey Store grew in all three areas.

Deli, food service, and retail, led by retail trade pack fresh turkey and rotisserie deli products.

We spent heavily on advertising on the Jennie-O Turkey Store brand in the third quarter gaining additional exposure and building the strength of the brand.

Our Specialty Food segment continued its momentum this quarter by growing segment profit and sales 19% and 12% respectively.

All three business units contributed to the results, led by sales of sports nutrition products, private label canned meats, and sugar products.

In our All Other International segment, segment profit increased 3% and sales grew 13%.

Continued excellent sales of our SPAM family of products were sufficient to offset pressure on our export sales from higher raw material costs.

We expect higher hog costs to continue in the fourth quarter, negatively impacting margins in our value-added Refrigerated Foods business and in our pork-based grocery product items.

We also expect to continue to invest in our Jennie-O Turkey Store brand during the quarter through significantly higher advertising spending.

On the positive side, we expect our Jennie-O Turkey Store unit to continue to substantially outperform compared to a year ago, and so far in the fourth quarter, cut-out margins have remained strong in Refrigerated Foods.

Taking these considerations into account and in light of our strong performance in the third quarter, we are again raising our full year guidance range from $2.75 to $2.85 per share, up to $2.85 to $2.91 per share on an adjusted basis.

It appears we are on track to achieve our long-term goal of growing earnings per share by at least 10% for the second consecutive year.

At this time, I will turn the call over to Jody Feragen to discuss the financial information related to the third quarter.

Thank you, Jeff.

Good morning, everyone.

For the third quarter of fiscal 2010, net earnings totaled $85.4 million, or $0.63 per share, compared to $77.2 million, or $0.57 per share a year ago.

Adjusted net earnings for the nine months of fiscal 2010 totaled $287.8 million or $2.13 per share, compared to $238.9 million or $1.76 per share a year ago.

Adjusted net earnings exclude the one-time charges related to the plant closure and the tax impact of healthcare law changes that were incurred in the second quarter of this year.

US GAAP net earnings for this year-to-date for the -- through the third quarter of 2010 were $274.4 million or $2.03 a share.

Dollar sales for the third quarter totaled $1.7 billion compared to $1.6 billion last year, a 10% increase.

For the nine months, dollar sales increased 6% to $5.2 billion.

Volume for the third quarter was 1.1 billion pounds, up 2% from 2009.

Year-to-date volume was 3.5 billion, also up 2% from fiscal 2009.

Selling, general, and administrative expenses in the third quarter were 8.5% of sales compared to 9% last year.

Year-to-date selling, general, and administrative expenses were 8.5% compared to 8.7% last year.

Advertising expenses were 1.8% of sales for the quarter compared to 1.6% in 2009.

Year-to-date, advertising expenses are 1.6% of sales compared to 1.5% last year.

As Jeff mentioned, we expect that advertising dollars will substantially exceed 2009 on a full-year basis as we increase spending levels in the fourth quarter.

Interest and investment income was $310,000 for the third quarter, compared to $6.4 million in fiscal 2009, as we expected, lower returns in 2010 on our rabbi trust investments drove the decrease.

We also expect difficult comparisons in the fourth quarter due to the stronger returns on our investments in 2009.

Interest expense for the coven was $6.5 million compared to $7 million last year.

Year-to-date interest expense is $19.6 million compared to $21.3 million last year.

We expect interest expense to be about $26 million for fiscal 2010.

Our effective tax rate in the third quarter was 35.8% versus 34.4% in fiscal 2009.

The year-to-date effective tax rate is 36.5% compared to 34.7% last year.

For fiscal 2010, we expect the effective tax rate to be between 36% and 37%.

The basic weighted average number of shares outstanding for the third quarter was 133 million.

The diluted weighted average number of shares outstanding for the third quarter was 135 million.

We repurchased 583,000 shares of common stock during the third quarter and we have 4.8 million shares remaining to be purchased from the five million fixed share authorization currently in place.

Total debt at the end of the quarter was $350 million and was reclassified into current maturities during the quarter.

Depreciation and amortization for the quarter was $31 million compared to $32 million last year.

For the first nine months of the year, depreciation and amortization was $92 million compared to $94 million last year.

We expect depreciation and amortization to be about $124 million for fiscal 2010.

Capital expenditures for the quarter totaled $24 million compared to $25 million last year.

For the first nine months of the year, capital expenditures totaled $64 million compared to $71 million last year.

For fiscal 2010, we expect capex to be approximately $90 million to $100 million.

At this time, I will turn the call over to the operator for the question-and-answer portion of the call.

Operator?

Thank you ma'am.

(Operator Instructions) Our first question is from the line of Farha Aslam.

Please go ahead.

Hi good morning.

Morning Farha.

Congratulations on a really good quarter.

Thank you.

Your Grocery Products sales were very strong in the quarter.

Could you just give us more color on what drove those results and how the core SPAM, chili products are setting up for the fall?

Sure.

The lion's share of the increase is from the MegaMex-added items.

We've seen not only the addition of new franchises, we've enjoyed solid sales of our existing Mexican items.

The rest of our Grocery Products portfolio was fairly flat for the quarter.

Some up, some down.

Hormel chili and Hormel hash were strong and we did have a weaker quarter for SPAM and for Dinty Moore.

In terms of an outlook, we expect better sales from some of the canned items as we head into the traditional canned season for this fall.

We expect the momentum to continue in Mexican.

Really, the item I have my eye on the most that we really need to figure out a turnaround story on would be the Compleats franchise because we were again down slightly on Compleats this quarter.

You're aware of our investment in would be plant and how important that line is for the Company so we're confident that we're going to find the right recipe to regain growth in that franchise.

Thank you, that's helpful.

Then as a follow-up, your corporate expense was significantly lower this quarter than last year.

Do you expect this to be a new level, and could you give us some more color on what exactly the lower employee costs were?

It was basically relating to truing up accruals for some compensation plans, Farha.

I would expect that in the 8.5% to 9% range would be where you will see us for the fourth quarter.

8.5% to 9% of sales?

Yes.

Okay.

Thanks.

My final question is just on turkey.

The recent increase in grain costs.

When can we expect that to flow through your P&L?

Because I know you guys have hedging programs and a lifecycle of the turkey.

As you point out, Farha, those are both factors in play.

We've talked about that we're at any time hedged from 25% to 75%, and that is true of the both our current picture and as we head into 2011.

In terms of the lifecycle it's 22 weeks for the toms which is the majority of the business there, and so to the extent you see higher spot market prices, if these stick -- the recent increase, that corn cost would start filtering through Q1 of next year, but again we will have a significant portion of our grain needs hedged against that as well.

Great, thank you very much.

The next question is from the line of Christina McGlone.

Please go ahead.

Good morning.

Hi Christina.

I guess in Jennie-O, I was wondering if you could maybe quantify the increase in advertising?

Because I wasn't sure, if it's -- it was a little bit less that I had expected and I wasn't sure if it's because your leverage to commodity has fallen because that's where you've cut?

Or if it's because of the higher advertising expense and how we should think about that for fourth quarter?

Jennie-O Turkey Store, the added advertising spend was in the $9 million range year-over-year in Q3 and we're planning the same enhanced advertising program in the fourth quarter.

Okay.

Thank you.

Do you think that -- are you seeing the same leverage in your model from the better commodity markets or because you have cut in that area?

We shouldn't necessarily apply what we're seeing in the commodity markets?

Well, the commodity market effect for us, it's a little harder to discern.

As we've talked about before, solid breast meat pricing is supportive of the value-added business, but we don't really sell a lot of breast meat on the commodity market so that's less of a direct advantage.

The dark meat, the thigh meat pricing -- almost all of our dark meat significant portion does go out on that market basis so those prices have been very solid this year, and down slightly from its peak, and our expectation is that, that should hold in place.

Okay.

And then in terms of Grocery, it looks like the last two periods for IRI data shows some pricing from Hormel but also some increase in promotion.

I know Sara Lee talked about a price increase in meats, so I was curious what your -- I think before you had said maybe you wouldn't start pricing until the fall.

Is that coming earlier, and what's the competitive climate like there?

Christina, pricing for our Company, when it comes to market-based items, and these would not necessarily be the Grocery products items but within more the Refrigerated portfolio and for Food Service.

We definitely have been moving prices on hams and bacon and fresh pork to correspond to these inflated markets.

In the Grocery area, we did announce price increases on Hormel hash and on corn beef related to tightening of supplies from South America but on the pork-based items, we continue to be in a wait-and-see mode.

We're trying to create the balance between what we're encountering in terms of increased input costs but also trying to be sensitive to what the consumers and our customers are looking for in terms of trying to hit certain price points.

Okay, thank you.

Last question, I think the CapEx budget dropped a little bit from the last guidance, and I was wondering if that's just timing or if it's something else?

Purely timing.

Okay, thank you.

The next question is from Jonathan Feeney.

Please go ahead.

Good morning, thanks very much.

Hi Jon.

Jeff, I wanted to, or Jody, I wanted to look in at -- looking forward to the following fiscal year, fiscal 2011.

When I think about the earnings base for Hormel, the biggest area of vulnerability, it seems would be this commodity cut-out situation which looks like, according to government data, year-record penny profits.

Can you talk about the dynamics that are allowing for those maximum cut-out profits in the marketplace?

How sustainable are they?

Has something permanently changed or changed for some period of time?

And how should we think about that versus what's the steady state business, for the Refrigerated Foods segment?

I would take the position that the current commodity cut-outs -- we're not counting on these sustaining at these levels, just as we were hopeful that they weren't going to sustain at the negative levels that we encountered a few quarters ago.

Traditionally, the needle moves and settles in between and that gets us back into a position where we can drive long-term growth through our value-added items and that's what we're counting on.

This market has been hard on our value-added items but we have been able to make up for a significant portion of that through these cut-out margins in the short run.

What's driving that, though?

Is it -- why aren't -- I guess maybe more pointedly, why aren't facilities that have historically served double shifting and triple shifting in these conditions doing that more quickly?

Jon, maybe I'll give you a little color.

Our hog supply is down 3% to 4%.

And that's a global reduction, not just in the United States.

And then we have unprecedented demand.

It's been pretty strong domestically but then the export markets have rallied back, maybe not to their record levels but certainly very strong.

We're year-over-year off a very weak 2009 when the recessionary things impacted us quite heavily.

So the demand factor seems to be a big portion of what's driving the cut-outs.

Then couple that with low protein levels across the board with the exception of chicken.

So we're in a tight supply situation.

Okay, great.

If could I ask one detail question, are there -- it seems to me like you've now got cash balancing all your short-term debt, so the sky is the limit, or several hundred million dollars is the limit of potential share repurchase.

Could you refresh me on that -- what are the structural inhibitions you have to share repurchase as they relate to the foundation?

I have 4.8 million shares left on an authorization from my Board of Directors and we will intend to use that strategically and opportunistically to repurchase our shares.

Obviously, we'd rather be investing in things that grow our business and provide a better return for our shareholders but in the meantime, we'll continue to look at our dividend policy as well as our share repurchase.

Great.

Thanks so much.

The next question is from the line of Diane Geissler.

Please go ahead.

Hello, can you hear me?

Yes, good morning.

Good morning.

I have a question just about your long-term growth.

If I look at your new earnings range that you've provided this morning, then I look at consensus, which I think is somewhere around $2.99, that's suggesting 3% to 4% growth in fiscal 2011 over fiscal 2010.

Is there anything that you see on the horizon that would prevent you from hitting your long-term 10% growth target next year?

Well, Diane, we haven't established our operating plan yet for next year.

Our team is obviously actively working on that right now.

We'll be reviewing with it our Board of Directors here this fall and we traditionally do announce that in November.

I will say -- the $2.99 number that is generated from what the analysts have in place right now, that's their number, that's not our number at this point.

We're not backing away from our long-term articulated growth goal of trying to grow earnings per share by 10% each year but we've not established a firm level for where we see 2011 coming in right now.

Okay, terrific.

Thank you.

Your next question is from the line of Akshay Jagdale.

Please go ahead.

Good morning.

This is Adam Josephson in for Akshay.

Thanks for taking my questions and congratulations on the good quarter.

On MegaMex how much distribution does that business have nationally and how much more do you expect it can get over the subsequent year or two?

It really varies by item.

They have a stable of brands that -- three large brands and another four or five smaller brands, and even the larger brands are in the 30% to 60% [ACV] range in many cases.

So we think that a lot of room to run.

We have a really wide array of products, but I sometimes get on the groove of about it being a mile wide and an inch deep.

I think we can get a lot deeper in a lot of these franchise areas and do a lot better with consumers there.

Great.

If the economy remains weak, you mentioned he Compleats has not been strong lately, also SPAM and Dinty Moore have not sold particularly more.

Would you expect SPAM and Dinty Moore sales to pick up again if economically this continues?

What else might you think would change next year if this continues as is?

It's interesting.

It's been fairly volatile even within the stretch of time where the economy has been under pressure.

Initially we saw very strong sales in SPAM and Dinty Moore and Hormel chili in the canned items.

We've seen some backing off.

But that's on year-over-year, but I mean we're still -- If you go back a couple years, even the current SPAM numbers are pretty darn good.

Those franchises should continue to do well.

As we pointed out though, we have items that are far from bottom dollar items that are doing very well in this economy.

Our party trays are doing great, our Pepperoni Minis are doing great, and the Pepperoni Stix, our Natural Choice items continue to gain distribution, so it really seems to be category by category, and what are you offering to the consumer who is looking for that category's items that makes the difference here.

The only other secular trend I guess I can point to in our business is we are seeing continued improvement in the Food Service part, particular well the branded value-added items.

They had a nice quarter with those.

Great.

Just one last one on Grocery Products.

You mentioned some price increases that you have announced.

You mentioned next quarter will be somewhat weak as well, given the higher raw material costs.

Do you expect to return to historical normal margins next year in that business given the price increases that you are taking?

And we'll probably after better outlook for that when we do the call next quarter, and we can really give you the next year.

The other wildcard with that and we'll walk you through that at that time is we -- the MegaMex business we do get -- we register 100% of the sales but it's a joint venture.

So it's only 50% of the profits that go through so that will have a -- make a difference in terms of what the long-term target rates are for operating Grocery, but we'll provide some better guidance on that when we head into 2011.

Great, thanks very much.

Next question is from the line of Lindsay Drucker-Mann.

Please go ahead.

Hey good morning everyone.

Good morning.

Good morning Lindsay.

I was hoping could you provide a little more color on pricing Grocery Products.

Just -- would you expect that the price increases that you expect to take for the fourth quarter will be able to fully cover the input cost inflation that hit you in the third quarter?

And Jeff you sounded mindful of balancing price increases to cover margins against a sluggish consumer back -- demand backdrop it seems.

Is the biggest concern that consumers will trade down to private label?

That retailers are pushing back?

What's really causing you to be so careful about how much pricing you're able to take?

Well, to us, the key long-term driver of value in this Company is to continue to grow our value-added franchises.

A year ago, it wasn't the third quarter call but it was the fourth quarter, we talked about -- we had, had negative quarter in terms of sales.

Great quarter on earnings but a negative quarter on sales.

So we felt at that time that maybe we had pushed the balance a little too far the direction away from sales.

We're obviously very pleased with the double-digit increase we're at right now.

So it's a balancing act.

You just continue to look at each of your segments and each of the franchises within the segments and try to figure out what's the optimal level to make sure you are still driving that value-added growth.

Of the items that we've announced any activity against, the hash and corn beef items, they're brand-new so we really don't have any report on what impact that is going to have to sales.

We have seen some slowdown, for example, in bacon this summer where we were not able to be as aggressive on the features given how high billing markets have gone.

Yes, you don't do as much volume when you're not hitting the same feature price point you were able to hit in a different market environment.

Okay.

And then also on the cut-out side, Jody, you talked about some of the drivers that are boosting cut-out margins this year, but Jeff, you -- I'm sorry?

Go ahead.

But, so -- and then Jeff you talked about an expectation that those margins might return to more normal levels next year but it seems like the backdrop is actually shaping up to be relatively similar with tight supplies and probably some decent export demand, and an overall tight protein backdrop.

So is there any reason why we should expect next year in light of the similar situation that next year margins wouldn't be similarly strong?

Let me answer that question.

The only cure for high prices is high prices.

So at some point, you hit prices where the export demand and the domestic demand will fall off.

But I don't have a crystal ball to tell you when that will happen.

But as Jeff indicated we would not expect these continued high cut-out spreads for a lengthy period of time just like we didn't have the negative ones for -- although it was painful for every minute that it was negative.

So I would expect that it is going to get back into equilibrium.

Okay.

Thanks.

The next question is from the line of Eric Larson.

Please go ahead.

Good morning, everyone.

Quick question related to the last one.

A few days ago, Mexico put pork on their retaliation list for violations by the US Government of various NAFTA provisions that we were supposed to be providing.

Does that -- given that Mexico is our largest export market is this something that could slow down the export picture and in particular does it do anything for ham pricing?

Which is where I think we sell a lot of hams to Mexico which is the big piece of the cut-out margins.

You're absolutely right.

We're still waiting to see what the impact of that tariff situation will have.

And that certainly could be something that would cause demand to decrease in the near term.

Long term, I don't know how they will sustain themselves, since we are their largest provider of that piece of protein, so --

Yes, sure, that makes sense.

I'm thinking more what could -- in the near term, in the next six, maybe even 12 months, get that back to a more normalized margin.

Then the second question, which falls on that same line of thinking on cut-out margins, we're talking about relatively tight supplies, and that is generally been incentive for the hog producers to raise more hogs.

But now in the last six weeks, we've added a dollar a bushel on corn pricing to their cost structure.

What are you hearing from -- are you hearing anything from farmers?

It seems that they might even be reluctant to move forward even with good margins, if their cost outlook isn't that favorable.

What are your thoughts on that?

Well, we're not heavily involved in raising them ourselves, but from what I understand, with the volatile grain prices, obviously producers are a little leery of putting on additional capital, and I think the lenders would probably be as leery as well.

So everything that you stated is absolutely how I would look at the world.

Right.

Well thank you, everyone.

The next question is from the line of Robert Moskow.

Please go ahead.

Hi, thank you.

Quick question.

Jody, on the CapEx what was the project that got pushed into fiscal 2011?

Because I remember the forecast for this year was $140 million originally for CapEx so that's about $50 million down.

I know we have some -- and it wasn't one specific project, but there were some enhancements we were making to one of our facilities on the west coast that probably got pushed off a little bit longer, and they're in the process of getting those going.

Nothing of the large magnitude.

That's a once in a -- every other decade type thing for Hormel to do but even some of our general maintenance CapEx with going through a tough year last year, people have learned to be creative, and I've still got them in that mode.

I was thinking they would get to the purse strings faster than they have.

It's just interesting to me, because this year you've raised guidance several times, so it seems like the Company is performing really well.

Why would you --

We do not have any mandates to not spend.

Let me put that it way.

So as the projects come bubbling through system we're approving them but they take awhile to get implemented.

We did have a burst, if you look at it over a three or four-year time frame, we added some fairly significant value-added capacity at Jennie-O three years ago, in our Dan's Prize operation, you add Dubuque.

So there has been some pent-up demand before that for where we're going to put some of these lines and so now we're more in a mode of trying to fill things that have available room.

So that maybe has slowed down the overall average spending.

Still doesn't quite add up, though.

You did have a plan for the year, and you're -- are you reacting then to a weaker demand environment by slowing down projects, or are you just like the projects are just taking longer than you thought?

I'm still not --

It's really the latter in this case.

If you had asked the same question a year ago, we would concede to you that we were being pretty aggressive about trying to slow people down and really, do we have to do the project.

That's not the mode we're in right now.

It's just -- part of it is timing and part of it is reassessment of certain of the projection that had been on the docket but there really isn't' -- we're not on a starvation diet when it comes to capital right now.

Okay, thanks for clarifying.

Then another question.

On the Refrigerated division, I estimate that about 50% of the profits came from the cut-out margin, then last year, cut-out margins were actually negative.

Is that a fair way to look at it?

Well, they weren't negative for the year.

In fact, there really was only a short period of time that they literally went negative.

They were worse than usual for most of the year.

What I meant is, when I compare quarter to quarter, Jeff, in your 10-Q last year you said that cut-out margins were actually negative in the July 2009 quarter.

So I'm trying to figure out how big the swing is.

The quarter, you are right.

So maybe it was like negative $5 a head a year ago, and is it as high as maybe a $15 a head positive this quarter?

Well, I don't think it's that high.

If you look at the average spread for between the -- if you just average the Western Corn Belt and the USDA cut-out for what was our third quarter, it was around $7, I think.

$7, okay, so I can look at those USDA numbers and that gives me a pretty good estimation for your cut-out numbers also?

That's where you get the quoted market for the cut-out, and then we use the Western Corn Belt because that's usually what most of our contracts are based off.

If I could just keep on this theme for a second, but when I look at like Tyson's cut-out margins, they seemed to well exceed $7 in the quarter.

Do you get a sense that you're performing in line with the industry on cut-out margins?

Those are market numbers I gave you.

Those aren't our specific numbers.

I don't have those with me.

I'll follow up later.

Lastly, your decision to hold off on pricing, was it influenced by the fact that you knew you were over-delivering in the quarter on the Refrigerated side, and would you, as Refrigerated margins normalize on the cut-out side, would that play a role in your decision on when to take pricing elsewhere?

No, Robert, I don't know that -- we certainly wouldn't have looked on a quarter basis.

I would say there's an element of looking at the year and saying, okay, we earned $2.53 last year, and we're on our way to having a very solid increase this year so we think we're in an okay position.

Now, if we keep -- if the squeeze keeps happening and we start seeing more of our franchises having a hard time meeting the margin projections, we may have to reassess that.

But we try to do it over a longer timeframe.

And really even to implement retail pricing changes these days, it's -- it can take a couple of months even, and once you do them, aside from the market-based items, we'd expect those prices to then stick for awhile.

So we really try not to make decisions based on a single quarter.

The reason I asked is that your margin in Grocery at 10.9%, that's the lowest I have ever seen it.

And surely, your division doesn't find that acceptable.

So at what point is it unacceptable?

You're saying it's -- you can deal with it now from a corporate perspective, or does that margin to have go higher in order for that division to feel like they've accomplished their goals?

Well, our long-term expectations for the division would still be on an annualized basis, and we do have some volatility in terms of seasonality with the business.

On an annual basis, we're still looking in the 16% to 18% rang.

Now, that may change slightly with the MegaMex change.

That's what I was referring to earlier, that, that could water it down, I don't know, on a 100-point basis point or somewhere in that vicinity because we are only taking in 50% the profits of that.

But overall, you are right, we would not be happy in the long run living at 11% range.

Okay.

Thanks a lot.

(Operator Instructions) The next question is from the line of Mike Hamilton.

Please go ahead.

Morning.

Hi Mike.

Jeff, could you comment -- turkey, your branding initiatives is there anything beyond overall branding technically that you're trying to accomplish here?

Well, it's a strong multimedia effort that we see ourselves not only needing to drive the Jennie-O Turkey Store brand, make sure it has higher awareness levels with consumers.

But frankly we see ourselves as the lead player in trying to drive enhanced household penetration and household consumption in turkey.

It's been flat for a number of years.

We're really the only company out there advertising in the turkey segment, but consumers are articulating a need for wanting to have more and more healthful items, and turkey certainly fits the bill for that so we're going after that in this environment.

Thanks.

Staying is on turkey, any thoughts on supply outlook going forward here over the next six to 12 months?

We think the turkey business has reached a good equilibrium, and we don't have any major expansion plans and have not heard others in that mode, so I think those conditions should remain favorable into next year.

Do you care to define significant there?

For which part?

Just on volume outlook.

All I can talk about really is ours, I mean, and in our case, we would be looking at no more than a 1% to 2% increase in total pounds.

Thanks and congratulations.

The next question is from the line of Eric Larson.

Please go ahead.

Thanks for the follow-up question.

I want to follow up with the fourth quarter.

With your new guidance range of $2.85 to $2.91, it implies a fourth quarter, I believe $0.72 to $0.78, and you earned $0.77 last year, and this year you've got an extra week in your operations, and then two years ago -- obviously two years ago you had a difficult quarter, but then you earned $0.73 in the fourth quarter the year before that.

So it doesn't necessarily seem like we're up against difficult comp with the exception of maybe the cut-out margins in the fourth quarter.

Can you give me a little flavor for why we shouldn't see a more significant up quarter if cut-out margins hold where they are right now?

And we've got the comps from two years ago, where you earned $0.73?

The comp that I would look at from that time frame was $0.70.

We did have $0.03 of extraordinary in that quarter.

Your point is well taken in terms of the roller coaster ride.

We took down to $0.50 and up to $0.77.

The other factors we're looking at here is we are doing a significant step-up in marketing spend to try to drive in particular the Jennie-O Turkey Store brand.

That will be to the tune of about a $15 million increase in total spending during the fourth quarter.

Otherwise, that's our best outlook of how the assortment of the other businesses will do.

We would agree that one potential upside to our number would be if these really high cut-out levels continue, but it's still very early in the quarter on that.

Okay, Jeff, thanks much, I appreciate it.

The next question is from the line of Farha Aslam.

Please go ahead.

Hi, thanks for taking the follow-up.

Could you share with us your M&A thoughts, where your focus is right now and the environment as you see it right now?

My sense is that there's maybe -- there's more dialogue now than there was during the trough of the recession hitting.

In terms of our priorities, they remain.

We have four key strategic areas of growth that we've identified for the Company -- value-added meals, processed items, value-added fresh meat, particularly in turkey and pork, and then solution products for the Food Service and deli.

And we work with bankers, we work with businesses that we identify on our own, and we certainly look for opportunities in any of those areas, and then we certainly have recognized that we're perhaps on the underleverage side in terms of international versus domestic.

And so that would -- we talked before that,that's a particular area of interest to us that would be to -- for investments in the international area, particularly in Asia.

Just as one more on the turkey division, you've restructured that business.

How much cost savings annually do you anticipate from the rightsizing of the business?

I don't know that we could -- I'm not going to -- I'm not hiding the ball.

I don't know that I even have specific number on that.

There's certain elements of the change in production that will stick and be there, hopefully year after year.

There are other elements that are going to depend on what the feed mix is, what the commodity mix is and so forth, but we're comfortable that they're operating very well and that we should see another good year from them heading into 2011.

Great, thank you.

And there are no further questions at this time.

I will now turn it back over to management for any closing remarks.

Thank you, all.

Hope you all have a great weekend, and feel free to call me with any follow-up questions.

Thank you.

Ladies and gentlemen, this concludes the Hormel Foods third quarter earnings conference call.

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